Madras High Court Seeks Clarity on Liability of Authorized Signatory in Section 138 NI Act Proceedings

LI Network

Published on: January 31, 2024 at 15:00 IST

In a recent development, the Madras High Court has referred a crucial question to a division bench regarding the legal status of the authorized signatory when criminal proceedings are initiated under Section 138 of the Negotiable Instruments Act (NI Act) against a proprietary concern.

Justice Anand Venkatesh acknowledged the existence of conflicting opinions on this matter, emphasizing the need for a definitive ruling, particularly in the context of criminal law that demands strict interpretation.

The Court raised two pertinent questions for the division bench’s consideration:

  1. In a Section 138 NI Act proceeding against a proprietary concern, should the proprietor alone be deemed the drawer of the cheque?
  2. If an authorized signatory signs the cheque on behalf of the proprietary concern, can they be implicated as an accused alongside the proprietor?

The background of this inquiry revolves around a petition filed by Vikas Chudiwala, an authorized signatory of the proprietorship M/s Prabhat General Agencies. The proprietor, TL Chudiwala, and Vikas were both accused when a cheque issued by the proprietorship concern was dishonored.

Vikas contended that only the sole proprietor should face accusations, asserting that as the authorized signatory, he could not be held liable. He cited the Supreme Court’s decision in RaghuLakshminarayanan v. Fine Tubes to support his argument.

Additionally, Vikas relied on a Madras High Court single bench decision in N.Gopalan Vs. K.Udhayakumar, where the court, in line with the Supreme Court’s judgment, quashed the complaint against the authorized signatory.

However, the Court highlighted another Madras High Court judgment that took an opposing stance, asserting that complaints could be maintained against both the proprietor and the authorized signatory.

The Court questioned the coherence of implicating both parties under Section 138 of the NI Act, which specifically targets the drawer of the dishonored cheque.

In light of these conflicting views, the court deemed it necessary to seek a conclusive ruling on the matter. The case has been forwarded to a division bench, and the court instructed the registry to present the order before the Chief Justice for the constitution of a bench to address this legal ambiguity.

This development signifies the court’s commitment to clarifying the legal responsibilities of authorized signatories in Section 138 NI Act proceedings, providing essential guidance for future cases.

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